Ep #164 - What Warren Buffett's Estate Plan Can Teach Every Family

[00:00:00] Ben Haas: Hi everyone, and welcome to AB Conversations, where we will help you CFP your way out of it. A podcast where you get into the minds of a couple certified financial planners on how we think and feel about everyday financial planning questions, and what should really matter most to you. A healthier financial life starts now.  

[00:00:28] Ben Haas: All right, Adam. Discussion today, we're going to use Warren Buffett as a launching off point. And I'm imagining if people are tuning into a financial planning podcast, they've heard of this guy who happens to have been around for a little while, is kind of the godfather of a lot of the fundamentals that we love. 

A lot of great one-liners. But we're not going to be focused on talking about him as an investor, nor his $140-$150 billion net worth, which by the way, I looked it up, he's like number 10 on Forbes behind guys like Bezos, Zuckerberg, you know, that Elon Musk guy. So here's the point. Today, we're gonna talk about something that he recently wrote about, recently being about a year and a half ago, in his annual letter to the shareholders at Berkshire Hathaway, and it wasn't investments. 

It was about his estate plan. So let me toss it to you. Let's use Buffett, and maybe what you're gonna share here a little bit as a good financial planning exercise on what estate planning is and what it needs to be over time, and maybe that's the teaser 

[00:01:35] Adam Werner: Yeah. When we think about estate planning for any new client that comes to us, it's often viewed through the lens of, okay, what if something happened yesterday, right? How can this go horribly wrong, and let's make sure we have things in place that my wishes are gonna be carried out. 

And that's incredibly important. But using, you know, Buffett as the example here, what happens if things don't go wrong, and in fact, they go very well, things go very right, and now I'm in my 90s, my kids might now be in their 70s. Am I passing all of my wealth to my kids that are, I'm assuming, also retired and probably doing okay at that point? 

So it does change a bit of the perspective to, Have my priorities maybe changed over time from an estate planning perspective? Again, because we're not necessarily planning as if something happened tomorrow or something happened yesterday negatively. It's now I'm maybe much closer to the end of my life. 

If I'm in my 90s, I know it's probably sometime soon. How would I want to change things at this point, knowing that maybe the people that I have named in these documents, those relationships may have changed. Maybe people aren't living anymore that I have named as executors or power of attorneys. 

Just a lot of those little details that when we're working with, I'll say, the younger clients, that they just need to get estate documents established. It is typically that, you know, we have young kids, we're gonna create a document, and I'm good for the next twenty years. I'm gonna set it and forget it. Later in life, it probably can't be that way. It probably shouldn't be the, "I'm just gonna set it and I'm good until I pass away." Things can change pretty drastically in a shorter period of time. So we would just wanna make sure that it's something that gets reviewed consistently 'cause there are a lot of little details that can change just on their own over the course of time. 

[00:03:27] Ben Haas: Yeah, I think what strikes me in your comment there is, yeah we talk about these documents and we talk about doing that at the onset of a relationship, and you bring up a really good point, and it is the Warren Buffett point. Things need to be dynamic. You know, he said recently when talking about this estate plan, like he's a pretty creative guy. 

He's a very intelligent man. He likes to think outside the box. But he said, "I can't think outside the box when I'm six feet underground at this point." But what he focused so much on was the people in his life, his children, his grandchildren, the charities, and I think it's real easy for us as planners to say, "You gotta go get a will. 

You gotta get a healthcare power of attorney." These are documents. This is standard stuff. We know that we're supposed to tell people to do this. Review your beneficiaries. Where we need to probably create more space is to have these conversations, to your point. He first like got real serious about these documents when his first wife passed away almost 25 years ago. 

Okay, well, to your point, some of those kids were 45 at that point, right? So then becoming trustees of this charitable trust and stepping into his shoes to leave the legacy that he wanted to leave in the philanthropic ways that he is, it's vastly different now, and you don't have to have his wealth for this to still like resonate as important to you. 

Think about the people in your life, the people that matter most. Think about where they are today, and then do me the favor and think about where they were five years ago or 10 years ago. It might have been a vastly different situation, whether that's the financials, the relationships in their life, what they're responsible for. 

You're asking people with your wealth and that's who we're speaking to here, people that have, you know, got some money set aside for themselves. You're asking them to step into your shoes and be good stewards of this, either for themselves or for the other causes or things that matter to you. 

So I think that default of, well, it's just this person and they'll deal with it, or, hey, they'll be able to handle this. I think there's probably a little bit more reflection that can go into making sure that it is the right setup and the right people, but that it's also they're aware of that responsibility that's coming to them, and that's kind of what's beautiful about what he's done. 

He speaks very clearly about how open he has been and how thoughtful this planning has been and how everybody's been included in that, and that's something that may get lost in some of this estate planning when we're talking with clients. 

[00:05:39] Adam Werner: Yeah, and I think that's often one of the most sensitive parts of the entire estate planning idea that whole conversation is that communication to whether it's your kids, grandkids, you name it, wherever this money is going to be left, having that communication in advance so it can be... 

Well, if I'm the child in this circumstance, and I know I'm having this conversation with, I'll say my parents, right? I might have my own feedback on, but I wouldn't want that, or I don't need XYZ, like that may be better served over here. Just to be able to have that conversation. 

Again, just full transparency between, in this case, parents, children, and grandchildren. I was gonna say I don't see how it could go wrong, but of course, family dynamics, it can always go wrong. But the idea of just putting everything on the table and making sure everyone's at least on the same page or aware of what book we're even reading is probably a good place to start, and something that I think matters for... 

And again, we're in this situation, we're not talking about people that maybe don't have kids or aren't married. , In the Buffett example of everyone's gonna have different feelings on what's gonna work for their kids. Like, he has this famous quote of, "Leave your children enough that they could do anything, but don't leave them too much or not enough to be able to do nothing moving forward with their lives." 

So everyone's gonna have their own kinda take on what that means for them and their family situation and their children. But I think it is an important piece that goes into it 

[00:07:17] Ben Haas: Yeah, 'cause when I make that comment and now you're kind of doubling down on it, when we think about the responsibility that somebody may have in picking these dollars up, we can go back to a younger generation. You know, like you know, if I passed away tomorrow, I don't want my kids responsible or... 

You know, now I have an 18-year-old as of last week. I don't want Caden responsible for handling certain things that I know he's just not capable of handling. So it's where it's really important to think about where they are in their phase of life and be able to have these discussions because there are mechanisms that can protect people from themselves or disperse things over a reasonable amount of time or insert somebody. 

We often default to these things and these people and these responsibilities need to go to family members. Doesn't need to always be that way, right? You're asking somebody to either be the trustee, right, somebody you trust, or be the executor, executrix of your estate. These are people that have to be really good at executing things. 

Just think about the responsibilities that you're putting on them and recognize that's gonna change over time, right? I'll make the pivot. We were talking about a couple not too long ago. I think they've done a fabulous job saving. They've put themselves in a really good spot where they're some of the most fun meetings we have to hear about what they're gonna do next now that they're enjoying this phase of their life together. 

But just the thought process of getting serious about the estate planning and recognizing that both of their kids are doing pretty well, so it's not like, hey, they're waiting for mom and dad's money to be able to do what they wanna do in life. It almost creates this, like, hurdle for them to get over, and I think it's because they are so productive that they think they have to have the perfect answer for what's gonna happen next, when really we're kind of just encouraging them to get something put down. 

Like, let's just get the ball moving forward, recognizing that in this case we're not talking about irrevocable decisions here. We're gonna wanna circle back to this as the grandkids get older and older 

[00:09:11] Adam Werner: Yeah. What just came into my head is something that I feel like I heard from you first years and years ago. It's progress, not perfection. In this world, we don't need to come up with the perfect estate plan today, and it's gonna be, you know, bulletproof for as long as I shall live. 

Like you said, just getting something, a framework started that now we can adapt to whatever, whatever comes at us, right? Whether it's the changes in you know, the investment world or in your financial life, properties, family members, right? I'm thinking of another example where another couple did a great job, documented everything, but now here we are much later in life, and some of the people that ha- they had named either as power of attorney or as the executor are no longer living, and these documents haven't been updated. 

By the way, this couple is now going through a divorce later in life, and everything kind of I shouldn't say everything, but a lot now needs to be reset and readdressed, and that's great. It should be readdressed. But the point is, there are probably people that have been named as those trusted you know, contacts, whether that is executing on the will or if it's trustee of a trust for whoever. 

If those people are no longer living, that's certainly going to pose an issue if there weren't either contingency people named, or if there just aren't people available. It can create a whole ‘nother host of potential dominoes that are pretty difficult to navigate once somebody passes away, if that document is not truly reflective of their wishes. 

[00:10:52] Ben Haas: So let's maybe make a pivot because, here we are basing this podcast on Warren Buffett, but there's been these other really famous people that have showed us how these things can go wrong, right? Aretha Franklin passing away without what we knew at that time, without a will. 

One showed up later, who knows how legitimate that was. But then you have all these people that are able to come at this estate and stake claim to it, right? Maybe that's not the best of example, but the point is, if, in your example, if a client now has named somebody and that person's not there anymore, and now you've passed away, we're right back to the courts now having to decide things. 

And now we're not just talking about expensive processes, but what you maybe, as the person that passed away, what you maybe were easily able to define as somebody next in line now has to, like, fight for that role to make sure that your wishes are followed through on. It's just it's a sad reality of the system, and I'm not saying there's any better way to go about it, right? 

In the absence of clear instructions, a documented will, you know, what are we gonna do? It's gotta be left up to the courts. And it just gets amplified when you hear these cases of celebrities where now you're seeing what are these expenses, what are these taxes, because something wasn't written down and wasn't planned on. 

You know, it's lots of zeros and lots of commas 

[00:12:11] Adam Werner: Yeah. The impact just it is amplified by the dollar amounts involved, for sure. And one of the other things that I feel like we've heard this from certain clients in the past too when just talking about estate planning, it's, "Well, but if I name so and so my executor or executrix, they know what I would want to have happen. 

They'll make sure, like, they know my wishes. So I don't have to document, you know, everything. They know what I would want to see happen." But that, that is rife with peril because we know beneficiary designations on accounts supersede the will. So that would happen before an executor would be able to do anything. 

And again, I think it's just a common misconception. The executor is really just there to follow the document as it's written. There's really not any interpretation that goes into it. And sometimes, again, I think people just have that thought that, "Well, as long as I name somebody who knows me, knows my situation, knows the kids, like they'll know what I want to have happen and they'll take care of it." 

But that's not how it's going to work. The documents matter, and as you were saying, if those documents don't exist, like some of these celebrity cases, then yeah, it's an expensive process that now you're going to go to the court system. The people that are going to win in that scenario are attorneys and the government, the IRS, and they are happy for any of us to not document these things correctly. 

And it's just one of those things. It's better to have something imperfect, going back to maybe what we were talking about earlier, having that framework that can then be adapted over time than just, you know, kicking that can down the road. I think you were explaining a little bit of like the Philip Seymour Hoffman, who's an actor, like what happened in his world where, yeah I wanted to avoid certain things, so I just didn't act, and then I passed away, and now I can't avoid those certain things. 

It's completely out of my control.  

[00:14:05] Ben Haas: What I wanted to say in follow-up to what you just said, there, yes, because there are these documents, and it is making it clear on who's gonna do what. I do wanna just double down, though, on the value of not just the documents, but the conversations outside of it. 

You know, to your point on, "Well, they know my wishes," you know, it is so very common for people that we work with to have some sort of, like, charitable part of that, right? And each person has their own degree. You know, we've got a client that's leaving everything to charity, and then there's these other clients that, "Hey we're annual givers, but we would want that to continue, so, you know, we're gonna bequeath something out of our will," or something like that. 

There are these situations then where trusts are created, and a trustee now needs to carry out the wishes of somebody else. But the trustee, I would tell you most attorneys, they do like a little bit of ambiguity so that person has the ability to be a little bit flexible. But now, if that person has the responsibility of really acting out on what you would've wanted, you better be crystal clear outside of that document on what matters most to you with these charitable organizations or in these causes that you wanna support. 

So it's almost like step one, you want this estate plan that's gonna be efficiently transferring wealth, but you also wanna make sure your family has the clarity and not confusion that could ultimately lead to conflict or just what things that you wouldn't have wanted to see happen 

[00:15:25] Adam Werner: Yeah, and I guess that really just comes back to just not leaving things up to interpretation if you can avoid it. I guess there is still that little bit of a gray area where, yeah, maybe the document isn't completely rigid, but it gives outside of the document maybe I'm just repeating you at this point, giving space for that conversation to happen, but that should also be documented. 

Doesn't necessarily need to be formally documented in an estate plan, like in a will or, you know, a trust document. That could just be a separate, you know, here's what's important to me, that type of more of an informal guidelines of if I wasn't here, or if I needed to do this for myself, I passed away and I'm still able to execute this, maybe that's a different way of kind of going about it. 

If I needed to execute this after I passed, what would I do? And then that can be the guide for whoever that person is in their life. And maybe so switching gears a little bit, just thinking of another client example that we've seen it several times now. It just feels more and more common. 

Blended family, right? Husband and wife maybe have had separate kids from previous relationships, now are together, and they're close to retirement. And as we're seeing, the boomers are now starting to inherit from their parents, right? The people that are in their 80s, 90s at this point are passing away, and something as simple as, "Well, this came from my side of the family. 

We are now blended. I would want this to stay within, you know, my side of the family." So just documenting things in a way that are crystal clear and carry out, if that is my intention, is to not unintentionally give some inheritance to not my children, or if it came from a certain side of the family, I want it to stay there. 

There's just ways to document these things. Changing beneficiary designations. There are ways to address it but again, it comes back to what you were saying. It's the communication, it's the conversations around the different situations because there's not one size fits all. 

There's not a one size fits all approach to estate planning. It is so hyper-specific to their financial situation. But of course, there's all of the human and emotional and psychological impact of me having to put myself in a spot that I'm not here, and what would I want to see happen? And making sure that the documents, the beneficiary designations, the people involved are also aware, and that all of those things at least align. 

But one last thought there. It can't be a static document. I know we've probably 

said this a few times now, those things will change. So it's not something that we necessarily would need, you know, clients to review every year, but every other year, every few years just to make sure. It's one of those situations where I'm sure I'm-- we're broken records at this point, but better to have the conversation and not need to change anything than not have the conversation and then find out, "Well, crap, I wish we would've and we would've changed XYZ, but at this point it's too late." 

[00:18:35] Ben Haas: Yeah. I mean, Warren Buffett is going to be 96, I believe, in the next couple weeks. So to your point, I wonder, and I'm sure it's not, you know, public information, but I wonder how many times that guy has changed his estate plan, because I'm willing to bet lots and lots of money that it's been more than once, it's been more than twice, it's probably been more than a handful of times. 

'Cause to your point, we could all be so lucky, and I'm not talking about his money, but just the health that he's had, the longevity that he's had. Gosh, if I get to 96 and still as cognizant and, you know, quick-witted as that guy. But it kind of proves your point. You know, these things will evolve over time, so don't let it be static. 

[00:19:16] Adam Werner: Yeah. Well said. I don't know that I have anything to add to that. 

[00:19:20] Ben Haas: Till next time 

[00:19:21] Adam Werner: bye 

Ben Haas: Hey everyone, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual. To determine which strategies or investments may be most appropriate for you, consult with your attorney, your accountant, and financial advisor, or tax advisor prior to making any decisions or investing. Thanks for listening. 

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